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U.S. Confectionery Business May Be Sold By Nestle: Sources


06/16/2017


U.S. Confectionery Business May Be Sold By Nestle: Sources
In what is considered to be the Swiss food group's latest effort to improve the health profile of its sprawling portfolio, Nestle may sell its roughly $900 million-a-year U.S. confectionery business, which includes Butterfinger and BabyRuth, reported Reuters.
 
Including a possible sale, for the business that also includes 100Grand, SkinnyCow and Raisinets, it would "explore strategic options", the world's largest packaged foods maker said on Thursday.
 
the U.S. confectionary business which is not in line with its stated strategy of becoming more health and nutrition-focused, could be exited by Nestle, analysts have been speculating.
 
Due to a new generation of savvy consumers that are eating fresher and healthier foods, the whole packaged food sector battles a slowdown and that strategy of Nestle, underlined by last year's naming of a healthcare veteran as CEO, comes amidst such a market environment.
 
In the U.S., Nestle is No. 4 behind Mars, Hershey and Mondelez International and it does not control its key KitKat brand, and the review is limited to the United States.
 
The U.S. confectionery business accounts for only 1 percent of company sales with annual sales of 900 million Swiss francs ($923 million). Nestle's other products range from instant coffee to mineral water and baby food.
 
"This might seem small stuff, but in our view it could be a significant step by new-ish CEO Mark Schneider ... toward a more deliberate and efficient capital allocation strategy," said RBC Capital Markets analyst James Edwardes Jones in a note.
 
Particularly KitKat, which is made in the United States by Hershey, it remained "fully committed" to growing its international confectionery business, Nestle said. The Nestle Toll House baking products would also be kept by it, the company said.
 
Sales of 8.8 billion Swiss francs ($9.02 billion) last year was generate globally for Nestle's confectionery business.
 
As companies seek to boost profits in a weak market, the global packaged food industry has seen a wave of deals.
 
In order to pay down debt from its purchase of Mead Johnson, which closed on Thursday, Reckitt Benckiser Group is selling its French's mustard business and after rebuffing a takeover bid by Kraft Heinz, and Reckitt Benckiser Group, Unilever is trying to sell its shrinking margarines business.
 
Bernstein analysts said was the lowest of this century and the fifth straight year of slowing growth referring to the organic sales growth of 3.2 percent last year that Nestle had.
 
As it presses the boundaries between food and medicine, by buying and investing in a range of biotech and medical device firms, Nestle has pushed aggressively into areas of health and nutritional science against that backdrop.
 
Including the Nutrament drink, Jenny Craig diet business and PowerBar snacks, it has divested underperforming businesses at the same time.
 
For the new CEO's to-do list, near the top would be a strategic review of the confectionery business, RBC's Jones said last year. "It's incompatible with Nestle's strategy, margins are falling and its competitive position is anemic," he said.
 
Having rejected a takeover offer last year by its more international rival, Mondelez, in the U.S., the clear leader is Hershey.
 
(Source:www.reuters.com) 


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